Read newspaper and make money | stockbee


Read newspaper and make money

James Cramer has a popular book called Mad Money: Watch TV, Get Rich. Some people claim to make occasional money watching him. But if you want to make big money and systematicaly find growth stocks that make dramatic moves of 100% plus in a year, you may find Investor Business Daily a better bet.

Like in religion, once you get convinced and adopt a trading philosophy, you can find many ways of achieving your trading nirvana. In trading my primary religion is growth. Growth in price or growth in earnings. Now one of the publication which exclusively focuses on growth stocks is Investors Business Daily. It is not really a newspaper, it is more like an evangelical publication aimed at followers of growth religion.

All most all my big ideas where I risk 5% to 10% on single idea or pyramid aggressively in to , I find using systematic study of IBD. There is a method to madness in everything in IBD. It exclusively focuses on high growth stocks. It very clearly highlights certain growth stock which in their judgement they feel are likely to make major moves. It constantly changes focus based on sector moves and market moves. If it feels a trend or stock or sector has big potential it will do a saturation coverage of the stock.

Now I am sure there are many IBD subscribers and they read it regularly. In my experience many of the subscribers do not really get in to depth or look for the big ideas in it. Many don't know how the EPS , RPS ratings, the accumulation distribution and other ratings are calculated. I attended a IBD meetup couple of times where 99% of the talk was about cup with handle, flat bases and chart patterns.

Everyday I read IBD in detail and then research few key ideas in greater detail using other sources, from these in a year I find a dozen ideas or so where I have conviction to put lot of capital to work and really pyramid in to them or press my bets on them.

Here are couple of things I look for in IBD:

1 Page 1 story. When IBD puts a company on page 1, I always dig deep. The page 1 main focus stories have generated lot of big ideas for me.

2 The big picture: Everyday I make a list of stocks under the Leaders up in volume and Leaders down in volume. If you study the list carefully, IBD only highlights certain stocks in it. Often the commentary on that page gives you a hint about sector change or impending stock top or estimates coming down.

3 New America. This one is obvious place to look for ideas. Similarly the company in the news feature is very helpful for understanding certain upcoming trends.

4 Funds top new buys: I always look at unknown companies in this list or those with high Comp ratings. Most of the time you will find some of these stocks breakout in month or two if they appear in this list for several funds.

5 Largest positions of funds in Big cap index and Largest positions of funds in value index. This is an excellent list of around 20 stocks each. Last year I found Las Vegas Sands and Mastercards , two big plays for me , in this list. I always focus on new addition to the list and young companies which have recently IPOed. If they make it to this list, the rally usually has legs. Now in recent month I noticed two new stocks Saks and CBG in it. Both worth keeping an eye on.
The other good use of this list is for short selling , when stocks get dropped from it or something goes wrong on stocks in this list, tey make good shorts.

6 Stocks on the move and Timesaver table. This is obvious one.

7 IBD's top supply demand companies. This is again very good source of big ideas. The stocks in this list are selected based on recent stock turnover as % of its float. All major winners like GROW, NVEC, AXR and so on were in this list and they rallied 100% plus post appearing in the list. This list is one of the best source of ideas I have found for stock likely to make significant move.

8 Industry Group: My today's earlier post gives details of this

9 IBD top 200 composite stocks. If you trade only these 200 stocks, you can beat the market.
10 NYSE stocks in the news and NASDAQ stocks in the news: This is one of the best place for short term and long term trades. The first 2 stocks in the list invariably pop due to IBD effect. The first 2 stocks which will normally have a commentary on the side, are the ones according to IBD patterns philosophy near buy points(C&W, Flat bases, double bottom at top of range etc. ). So these stocks are highlighted before they breakout.

Now besides that the weekend 85- 85 and IBD 100 list is useful. Within that the black bordered stocks usually pop next week due to IBD effect.

Due to the nature of newspaper, most of the time one forgets what you read in it a week ago. So everyday I create a page or two summary and file it and keep referring back to it again and again. I scratch out ideas which do not work or have events which change fundamental assumption. The surviving ideas have legs. Plus the notes help in developing market and sector understanding over a period of time. All this takes me 45 minutes in the morning. But it has made lot of money for me. For example recently IBD highlighted the solar energy stocks after Germany changed it utilities law and after several solar companies announced earnings. Since then one after another solar companies like TSL, FSLR, ASTI, WFR etc popped. Some of them made 100% plus moves in few months. Similarly the medical device makers like HRT, CYNO, ROCM, have had saturation coverage for many months. Recently after the correction started IBD changed focus on fresh set of sectors. Now all this information is available ahead of time before most of these stocks breakout. What more do you want. Plus you know William O'Neil is very successful trader, so you are essentially getting a perspective on market from successful growth trader along with news and views.

Obviously this involves some effort, but few big ideas in a year is all you need to make a resoundingly profitable year. If you are motivated to make big money, reading a newspaper in microscopic details may not be a bad idea......


S said...

Thank you Pradeep. You are the maaaan.

Keep it up

markatkar said...

Thank you for your crystal clear insights. I have learnt more in 3 weeks since I stumbled across your blogs (through Trader Mike). I have been reading them with great delight and aniticipation. I still have a long way to go to fully assimilate the information contained in the IBD.
Your blogs show a clear path.

I have treated each issue of IBD as a Ph.D. thesis or multiple theses, being written by all its reporters. No doubt it is a great service to all growth investors for a reasonable price. One distraction is the importance of buying only if a stock comes out of cup and handle, flat base, W base etc.. Then, the chart becomes more important. I have following questions for your consideration:

a. In your opinion, how much weight should one put on the sector and then the individual stock. Is it subjective or based on the stock's momentum, EPs, held in a mutual fund, recent sprint because of the earnings surprise or what else? All of the above?

b.How do you handle the information contained in the stock checkup. Because, by the time a stock reaches IBD's A+ rating, OFTEN, its best gains are behind.
c. The importance of buying at 52 week high is stressed as if it is a religion. That may work during the initial phase of the stock's rise. Or is to frustrate the shorts who may be waiting eagerly to shake out weak hands. What is your experience.
d.You had mentioned that you have a assembly line of ideas that you generate. Are they mainly from IBD?
Or are they from other market aberrations? Or from your databases based on momentum.
e. How do you integrate all the information. There is so much information generated by IBD, Worden data, 100% gainers, 200% gainers etc. Agreed it takes an hour or more daily, to filter this information. How do you handle this information overload and filter out various types of useless data/information to arrive at a logically sound and strong stock pick.
Thank you again for your blogs. Much appreciated.

Pradeep Bonde said...

Thanks. I will answer some of these issues in seperate post.